China’s Yuan Declines as Dollar Rebounds Amid Trade Policy Uncertainty

The Chinese yuan weakened against the U.S. dollar on Tuesday as the greenback edged up from a two-month low, with investors awaiting further policy signals from China and the United States following the imposition of new tariffs.

The spot yuan opened at 7.2650 per dollar and was trading at 7.2737 as of 0310 GMT, down 87 pips from the previous close. The offshore yuan also declined, trading at 7.2744 per dollar, down 0.1% in Asian trade.

Market participants remain cautious as Beijing has yet to implement immediate policy measures to counter the economic effects of tariffs, while the U.S. has not taken action to address potential inflationary pressures. “While the market waits for updates from both capitals, the recent headlines are just one phase in a broader trend of tariff-driven volatility,” said Philip Yin, China currency and rates strategist at Citi.

The dollar had weakened to a two-month low on Monday as fears of a full-scale global trade war eased, offering brief relief to the yuan. However, investors are now turning their attention to the Federal Reserve’s January meeting minutes, set for release on Wednesday, to assess policymakers' views on the risks posed by U.S. trade policies.

Trade tensions between the world’s two largest economies remain a key factor influencing the yuan. During former U.S. President Donald Trump’s first term, the yuan fell more than 12% against the dollar between March 2018 and May 2020.

Ahead of the market open, the People’s Bank of China (PBOC) set the midpoint rate at 7.1697 per dollar, which was 841 pips stronger than Reuters' estimate.

In a separate development, Chinese President Xi Jinping held a rare meeting with major technology sector leaders, including Alibaba founder Jack Ma, urging them to showcase their expertise and confidence in Beijing’s economic model. Analysts noted that while this meeting may boost equity sentiment, it is unlikely to have a significant impact on currency or interest rate markets.

Meanwhile, the dollar index (DXY), which tracks the greenback against a basket of six major currencies, rose 0.187% to 106.92.

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